How to Set Up a Flexible Premium Annuity

Everyone wants to be able to retire with enough income to sustain his or her lifestyle. Purchasing an annuity is a smart way to guarantee that you'll receive a certain amount of income for the rest of your life. If you set up a flexible premium annuity, you can make contributions whenever you want or are able to.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Funds to pay premiums

Set Up a Flexible Premium Annuity

1. Be consistent with your contributions. Although flexible premium annuities enable you to deposit money when you want to, make sure you will have sufficient money paid in to provide for your needs.

2. Set up an annuity that allows you to switch over to a regular, fixed plan if you find yourself in a position to do so. This will enable you to better ensure you'll contribute the amount you need for retirement or other needs.

3. Have a beneficiary in mind who will receive any monies due you in the event of your death. Keep in mind that the beneficiary will be taxed on the money he receives.

4. Withdraw up to 10 percent of the accumulation value or all of the gains to the annuity each year, without surrendering your annuity.

5. Choose the type of investments you are comfortable with when picking an annuity. They can be made of various instruments, such as securities, bonds and treasury bills.

6. Shop around for the best fit for your needs. Almost all insurance companies offer annuities, but each one has its own specialties. Many offer special rates.

7. Seek help from someone versed in annuities before you sign a contract. The more you know, the easier it is to make the right decisions for your future.

8. Ask your employer about taking money from your 401k plan to set up your annuity. You want to roll the funds directly into an annuity, ensuring that the money is not considered a distribution, which would likely be taxable.

Tips & Warnings

• Remember to diversify your investments. Annuities are great, but you should also make use of other investment instruments that can increase your returns.
• These annuities are available both non-qualified (not associated with your employer) and qualified (part of a company-retirement plan).
• Some flexible premium annuities require minimum payments to remain in effect while others require minimum start-up amounts. Verify this with the issuer before you set up your plan.
• Keep in mind that there are annual charges associated with most annuities, including maintenance fees or charges for changes you make.
• Be aware that withdrawals made before you are 59 1/2 years old could be subject to a 10-percent federal tax.